Supply Chain Management, Procurement, Sourcing, Acquire, and Logistics

1. SUPPLY CHAIN MANAGEMENT
Delivered By:
Rishabh Agarwal
MBA IIM-C
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2. Learning Objectives
• To understand the escalating importance of SCM
• To learn about Evolution of SCM
• Understanding Global SCM and Logistics
• Understanding Purchase as a concept
• Understanding key terms and jargons used in SCM
• SCM Strategies
• What’s New
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3. A picture is better than 1000 words!!
- A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream
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4. • Supply chain management (SCM) is the management of the
flow of goods. It includes the movement and storage of raw
materials, work-in-process inventory, and finished goods from
point of origin to point of consumption.
• An integrated group of processes to “source,” “make,” and
“deliver” products
• Supply-chain management connects a company’s supply side
with its demand side.
• Competition is no longer between companies; it is between
supply chains
• That portion of the supply chain which comes after the
manufacturing process is sometimes known as the distribution
network
• Importance of the Supply Chain: Globalization of
manufacturing
INTRODUCTION
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5. Supply Chain Processes
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6. Traditional Scope of the Supply
Chain
Business logistics
Physical supply Physical distribution
(Materials management)
Sources of
supply
Plants/
operations
Customers
• Transportation
• Inventory maintenance
• Order processing
• Acquisition
• Protective packaging
• Warehousing
• Materials handling
• Information maintenance
• Transportation
• Inventory maintenance
• Order processing
• Product scheduling
• Protective packaging
• Warehousing
• Materials handling
• Information maintenance
Internal supply chain
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7. Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
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8. UNDERSTANDING GLOBAL
SUPPLY CHAIN MANAGEMENT
AND LOGISTICS
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9. Well . . . . Is This Logistics ?
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10. Actually . . . . . This Is Logistics
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11. Transportation
• Rail
• low-value, high-density, bulk
products, raw materials,
intermodal containers
• not as economical for small
loads, slower, less flexible than
trucking
• Trucking
• main mode of freight transport
• small loads, point-to-point
service, flexible
• More reliable, less damage than
rails; more expensive than rails
for long distance
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12. Transportation (cont.)
•Air
• most expensive and fastest, mode of
freight transport
• lightweight, small packages <500 lbs
• high-value, perishable and critical goods
• less theft
•Package Delivery
• small packages
• fast and reliable
• increased with e-Business
• primary shipping mode for Internet
companies
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13. Transportation (cont.)
•Water
• low-cost shipping mode
• primary means of international shipping
• waterways
• slowest shipping mode
•Intermodal
• combines several modes of shipping-truck,
water and rail
• key component is containers
•Pipeline
• transport oil and products in liquid form
• high capital cost, economical use
• long life and low operating cost
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14. Duties and Tariffs (cont.)
APEC
ASEAN
ANZCERTA
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FTAA
NAFTA
CALM
ATPA
TAFTA
MERCOSUR

15. INCOTERMS Map
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16. • Sea and Inland Waterway Transport
• FAS – Free Alongside Ship (named port of shipment)
• FOB – Free on Board (named port of shipment)
• CFR – Cost and Freight (named port of destination)
Seller must pay the costs and freight to bring the goods to the port of
destination. However, risk is transferred to the buyer once the goods are
loaded on the vessel. Insurance for the goods is NOT included. This term is
formerly known as CNF (C&F, or C+F).
• CIF – Cost, Insurance and Freight (named port of destination)
Exactly the same as CFR except that the seller must in addition procure and
pay for the insurance.
INCOTERMS
International Commercial Terms
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17. • General Transport
• EXW – Ex Works (named place of delivery).
• CIP – Carriage and Insurance Paid to (named place of destination)
The containerized transport/multimodal equivalent of CIF. Seller pays for
carriage and insurance to the named destination point, but risk passes when
the goods are handed over to the first carrier. CIP is used for intermodal
deliveries & CIF is used for Sea .
• DDP – Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the
country of the buyer, and pays all costs in bringing the goods to the
destination including import duties and taxes. The seller is not responsible
for unloading. This term is often used in place of the non-Incoterm "Free In
Store (FIS)". This term places the maximum obligations on the seller and
minimum obligations on the buyer.
INCOTERMS
International Commercial Terms
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18. UNDERSTANDING PURCHASE
AS A CONCEPT
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19. Buy
Purchase
Procurement
Contracts
Sourcing
Acquire
Understanding Key Terminologies
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20. Buy – general act of acquiring anything
Purchase – Money, ready made material
Procurement – Plus Efforts
Contracts – mostly services and agreements
Sourcing – act of obtaining (repeatable/ not one time
activity) Global/ strategic/ outsourcing
Sourcing manpower, information, not necessarily goods
Acquire – to gain possession, complete rights, e.g. you
can not sell a pump in your name as it is not being
acquired, Mergers and Acquisitions
Understanding Key Terminologies
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21. • Procurement steps
• Procurement life cycle in modern businesses usually
consists of 7 steps:
1. Identification of need:
2. Supplier Identification:
3. Supplier Communication:
4. Negotiation:
5. Purchase Orders:
6. Logistics Management: expediting, shipment, delivery
7. Payment:
SOP (Standard Operating Procedure)
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22. 1. Scope of Work
2. Total Amount
3. Delivery Date and Terms
4. Payment Terms
5. Bank Guarantees
6. Currency Fluctuation or Exchange Rates
7. Packaging Terms
8. Expediting
9. Inspection and Quality
10. Taxes
11. Insurance
12. LD Clause
13. Warranty Terms
14. Arbitration or Jurisdiction
15. Force Majeure
16. Documentation
17. PO Acceptance
18. General Terms and Conditions
Letterhead PO#
Vendor
Ref#
Purchase Order Contents
Quote
Ref#
Order
Date
Delivery
Address
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23. Direct procurement
occurs in
manufacturing settings
only.
In contrast, Indirect
procurement activities
concern “operating
resources” that a
company purchases to
enable its operations.
DIRECT VS.
INDIRECT
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24. • What instigates the movement of the work in the system?
• In Push systems, work release is based on downstream demand
forecasts
• Keeps inventory to meet actual demand
• Acts proactively
• e.g. Making generic job application resumes today (e.g.: exempli gratia)
• In Pull systems, work release is based on actual demand or the
actual status of the downstream customers
• May cause long delivery lead times
• Acts reactively
• e.g. Making a specific resume for a company after talking to the recruiter
Push vs Pull System
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25. • Factors that contribute to
uncertainty
• inaccurate demand forecasting
• long variable lead times
• late deliveries
• incomplete shipments
• product changes batch ordering
• price fluctuations and discounts
• inflated orders
Supply Chain Uncertainty
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26. Bullwhip Effect
Occurs when slight demand variability is magnified as information
moves back upstream
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27. UNDERSTANDING ROLE OF A
SCM PROFESSIONAL
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28. Vendor Selection
 Vendor evaluation
 Critical decision
 Find potential vendors
 Determine the likelihood of them becoming
good suppliers
 Vendor Development
 Training
 Engineering and production help
 Establish policies and procedures
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29. Vendor Selection
 Negotiations
 Cost-Based Price Model - supplier opens
books to purchaser
 Market-Based Price Model - price based on
published, auction, or indexed price
 Competitive Bidding - used for infrequent
purchases but may make establishing long-term
relationships difficult
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30. Supply Chain Strategies
 Negotiating with many suppliers
 Long-term partnering with few
suppliers
 Vertical integration
 Joint ventures
 Keiretsu
 Just In Time
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31. Many Suppliers
 Commonly used for commodity
products
 Purchasing is typically based on
price
 Suppliers compete with one another
 Supplier is responsible for
technology, expertise, forecasting,
cost, quality, and delivery
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32. Few Suppliers
 Buyer forms longer term relationships
with fewer suppliers
 Create value through economies of
scale and learning curve
improvements
 Suppliers more willing to participate in
JIT programs and contribute design
and technological expertise
 Cost of changing suppliers is huge
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33. Vertical Integration
Vertical Integration Examples of Vertical Integration
Raw material
(suppliers)
Iron ore Silicon Farming
Backward
integration
Steel
Current
transformation
Automobiles
Integrated
circuits
Flour milling
Forward integration
Distribution
systems
Circuit boards
Finished goods
(customers) Dealers
Computers
Watches
Calculators
Baked goods
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34. Joint Ventures
 Formal collaboration
Enhance skills
Secure supply
Reduce costs
 Cooperation without diluting brand or
conceding competitive advantage
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35. Keiretsu Networks
 A middle ground between few suppliers and
vertical integration
 Supplier becomes part of the company
coalition
 Often provide financial support for suppliers
through ownership or loans
 Members expect long-term relationships and
provide technical expertise and stable
deliveries
 May extend through several levels of the
supply chain
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36. Just In Time (JIT)
 “the right material, at the right time, at the right
place, and in the exact amount”, without the
safety net of inventory.
 The philosophy of JIT is simple:
 the storage of unused inventory is a waste of
resources.
 JIT inventory systems expose hidden cost of keeping
inventory.
 Inventory is seen as incurring costs, or waste,
instead of adding and storing value, contrary to
traditional accounting.
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37. Measuring Supply-Chain Performance
• Inventory Turnover: how often the company replenishes
inventory. High value of inventory turnover means that the
inventory was not sitting around a long time.
Inventory
turnover
=
Cost of goods sold
Inventory
investment
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38. • Internet and E-Procurement
• RFID Capabilities
• SCM Software: ERP (Enterprise
Resource Planning) Software e.g.
SAP, Oracle, etc.
What’s New?
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39. • Information links all aspects of
supply chain
• E-business
• replacement of physical
business processes with
electronic ones
• Electronic data interchange
(EDI)
• a computer-to-computer
exchange of business
documents
• Bar code and point-of-sale
• data creates an instantaneous
computer record of a sale
• Radio frequency identification
(RFID)
• technology can send product
data from an item to a reader
via radio waves
• Internet
• allows companies to
communicate with suppliers,
customers, shippers and other
businesses around the world,
instantaneously
Information Technology:
A Supply Chain Enabler
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40. RFID Capabilities
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41. • Direct purchase from suppliers over the Internet
• Direct products go directly into production
process a product, indirect products not
• E-marketplaces
• web sites where companies and suppliers conduct
business-to-business activities
• Reverse auction
• a company posts orders on the Internet for suppliers to
bid on
E-Procurement
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42. Online Sourcing/ Procurement
Process
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43. Online Sourcing/ Procurement
Process (cont.)
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44. Online Sourcing/ Procurement
Process (cont.)
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45. • Enterprise Resource Planning (ERP)
• software that integrates components of a company by
sharing and organizing information and data
• SAP was first ERP software
• mySAP.com
• web enabled modules that allow collaboration between
companies along the supply chain
SCM Software
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46. Linking Supply Chain with SAP (C) www.rishabhagarwal.in

47. Supply Chain Economics
Supply Chain Costs as a Percent of Sales
Industry % Purchased
All industry 52
Automobile 67
Food 60
Lumber 61
Paper 55
Petroleum 79
Transportation 62
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48. Losing Sight of the Common Objective
I'm glad that the hole
is not on our side!
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49. • Wikipedia
• Annual Consulting Companies Report
• Course Material B Schools
• Internet Open Sources
References
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50. © RISHABH AGARWAL
WWW.RISHABHAGARWAL.IN
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